Question

Three years ago, Adrian purchased 450 shares of stock in X Corp. for $89,550. On December 30 of year 4, Adrian sells the 450 shares for $89,950. Assuming Adrian has no other capital gains or losses, except that on January 20 of year 5, Adrian purchases 450 shares of X Corp. stock for $85,950. How much loss from the sale on December 30 of year 4 is deductible on Adrian's year 4 tax return? What basis does Adrian take in the stock purchased on January 20 of year 5?

Answer 1

Adrian did not incur a loss; instead, he had a capital gain of $400 from the sale of X Corp's stock on December 30 of year 4, so no loss is deductible. The basis for the 450 shares of X Corp. stock purchased on January 20 of year 5 is $85,950.

Step-by-step explanation:

Three years ago, Adrian purchased 450 shares of stock in X Corp. for $89,550. Then, on December 30 of year 4, Adrian sells the 450 shares for $89,950. To determine the capital loss Adrian can deduct on his year 4 tax return, we look at the difference between the selling price and the purchasing price: $89,950 (selling price) - $89,550 (purchasing price) = $400 (capital gain)

However, since the selling price is higher than the purchase price, Adrian did not incur a loss; he gained $400, hence no loss can be deducted on the year 4 tax return.Subsequently, on January 20 of year 5, Adrian repurchases 450 shares of X Corp. stock for $85,950. The basis of the stock purchased on January 20 of year 5 is simply the total amount paid for the stock, which is $85,950.